Exercises: Consumer Spending Patterns in Ireland

A household in Dundalk has a weekly disposable income of €900. It spends €270 on housing, €180 on food, €135 on transport and €90 on leisure.

1. a) Calculate each item as a percentage of income.

1. b) Calculate the amount left for saving or other spending.

1. c) State which item takes the largest share of the budget.

Explain the difference between a necessity good and a luxury good, using income elasticity of demand. Give one example of each that Irish households buy.

The Central Statistics Office (CSO) conducts a Household Budget Survey. Explain what the survey measures and give two uses of its results for government or business.

The table shows the weekly spending of two Irish households on selected items.

1. a) Calculate the percentage of total spending going to each item for each household.

1. b) Explain what the pattern shows about necessities and luxuries.

1. c) State what you can conclude about how the share of food in spending changes as income rises (Engel's law).

A household's weekly income rises from €800 to €880. Its weekly spending on eating out rises from €40 to €52.

1. a) Calculate the percentage change in income and in spending.

1. b) Calculate the income elasticity of demand for eating out.

1. c) Classify the good (inferior, normal necessity or luxury) and justify.

A household's spending on own-brand bread falls from €12 to €9 per week when income rises by 10%.

1. a) Calculate the percentage fall in spending and the income elasticity.

1. b) Identify the type of good and explain.

1. c) Explain what this means for a supermarket planning its range during a period of rising incomes.

The following data come from a household survey in an Irish town:

1. a) Calculate the spending shares of each item for each group.

1. b) Calculate the income elasticity of demand for each item between groups A and B (use the percentage change method).

1. c) Classify each good and explain the implications for business planning as incomes grow.

1. d) Discuss the limitations of using cross-section survey data to predict how an individual household will behave over time.

Since 2010 rents in Irish cities have risen faster than incomes. A student household has a monthly income of €2,400 and spends €1,000 on rent.

1. a) Calculate the share of income spent on rent.

1. b) Rent rises by 15% while income rises by 3%. Calculate the new share of income spent on rent.

1. c) Explain the effect on spending on other goods and on saving, and the likely effect on aggregate demand.

1. d) Discuss two policy responses and their possible side effects on the housing market.

A retailer in Cork sells a premium product with an income elasticity of 1.8 and an own-price elasticity of -0.6, and a budget product with an income elasticity of -0.5.

1. a) Predict the effect on quantity demanded of each product if incomes rise by 5%.

1. b) Predict the effect on revenue of the premium product if its price rises by 10% and incomes are constant.

1. c) Explain what happens to the retailer's product mix in a recession.

1. d) Recommend a pricing and stocking strategy for the next two years and justify it.